- AUD/JPY weakens around 97.05 in the Asian session on Friday, down 0.22% on the day.
- The BoJ kept interest rates unchanged in September, as expected.
- CBA analysts expect the RBA to cut its official cash rate (OCR) in December.
The AUD/JPY pair lost ground around 97.05, snapping the four-day winning streak during Asian trading hours on Friday. The pair retreated after the Bank of Japan (BoJ) announced its policy decision.
As widely anticipated, the BoJ decided to keep the short-term rate target in the 0.15%-0.25% range following the conclusion of its two-day monetary policy review meeting on Friday. The Japanese BoJ remains cautious about raising rates further as it could hurt economic activity and hamper the demand-driven inflation it is trying to support.
However, Japanese officials are set to meet again in October and December, leaving the door open for further rate hikes after recent economic data revealed that inflation in Japan has been higher than estimated. Growing speculation that the Japanese central bank will raise interest rates again later this year provides some support to the Japanese Yen (JPY) and acts as a headwind for the AUD/JPY.
Data released by Japan’s Statistics Bureau on Friday showed that the national Consumer Price Index (CPI) rose 3.0% year-on-year in August, compared with 2.8% in July. Meanwhile, the core CPI, which excludes volatile fresh food costs, rose 2.8% year-on-year in August from 2.7% previously, matching the market expectation of 2.8%.
On the Australian front, Commonwealth Bank of Australia (CBA) analysts moved their expectation for the RBA’s first rate cut from November 2024 to December 2024, with a 25 basis points (bps) rate cut expected. This, in turn, could weigh on the Australian Dollar (AUD) against the JPY in the near term.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets the country’s monetary policy. Its mandate is to issue banknotes and carry out monetary and foreign exchange control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan has been pursuing ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflation environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing money to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further relaxed policy by first introducing negative interest rates and then directly controlling the yield on its 10-year government bonds.
The Bank of Japan’s massive stimulus has caused the Yen to depreciate against its major currency peers. This process has been exacerbated more recently by a growing policy divergence between the Bank of Japan and other major central banks, which have opted to sharply raise interest rates to combat decades-high inflation. The Bank of Japan’s policy of keeping rates low has led to a widening spread with other currencies, dragging down the value of the Yen.
The weak yen and the surge in global energy prices have caused Japanese inflation to rise, exceeding the Bank of Japan’s 2% target. However, the Bank of Japan judges that a sustainable and stable achievement of the 2% target is not yet in sight, so a sharp change in current monetary policy seems unlikely.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
